From railways to ETFs: 130 years of Dow Jones tell the story of the transformations of financial capitalism

THE ESSENTIAL

Dow Jones SPF 500, Nasdaq, these terms are often used. But do you really know what they cover?

The history of stock market indices is rich. In parallel, it tells the history of capitalism and finance in the United States.

What one chooses to measure is never innocent, so what does this history of the power of finance over the economy really tell us?

On May 26, 2026, the Dow Jones Industrial Average (DJIA) celebrated its 130th anniversary. The doyen of the major stock market indices, its history, compared with that of the indices that followed it, shows how the financial market successively told its own story, tried to project itself, measure itself, and then direct capital itself.

A figure born in the press

The first “Dow” appeared in 1884 in the Customer’s Afternoon Letter, predecessor of The Wall Street Journal. With its 11 constituents, mostly railroads, the Dow Jones Railroad Average (DJRA) sums up an emerging national economy unified by the railroads. This journalistic origin explains its simplicity. Data collection and calculation had to be fast enough for the index to be published immediately afterward, shortly after the stock market closed. Dow was first addressing New York financiers, and this came at the cost of an approximation in tracking the market. The DJRA was a price-weighted index.

In practice, Dow adds up the share prices of the eleven companies making up the index, then divides this sum by eleven to obtain the value of the index. As a result, a share whose price in dollars is high carries more weight in the index than a cheaper share, even if the company that issued the latter has a much larger stock market capitalization because of a far greater number of shares outstanding.

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Twenty constituents in 1916, 30 in 1928

In the 1890s, the Second Industrial Revolution took shape. Mergers and acquisitions gave industrial companies the size needed to access the stock market. On May 26, 1896, Charles Dow thus published the first Dow Jones Industrial Average (DJIA). Gas, steel, and electricity replaced the railroad, which from then on was exclusively covered by the DJRA.

The DJIA was expanded to 20 constituents in 1916, then to 30 in 1928. Its calculation method was then reformed to mitigate the index continuity problems caused by capital operations or by the inclusion of a new constituent. Since that date, the DJIA has kept this format. Its composition changes with the dominant sectors. Companies are included in the index according to their representativeness of the U.S. economy and their reputation.

In the 1920s, with the rise of share ownership, investment funds, and the financial press, the index was no longer just a tool reserved for specialists. It reached the general public. The New York Herald Tribune and The Annalist, a supplement to The New York Times, published indexes and returns in graphic form. People no longer followed only General Motors or U.S. Steel: they followed “Wall Street.”

Standard Statistics, the precursor company to Standard and Poor’s, took an additional step in 1926 toward the development of the financial information industry. Weighted by market capitalization and extensively documented, its many daily indexes were part of a true financial information industry, covering a broad range of stocks.

More precise measures than the Dow are needed to assess the performance of the investment funds that were spreading at the time. The Dow tells the story of the market, and Standard begins to provide it with a precise informational infrastructure. The October 1929 crash paradoxically reveals the power of the Dow. Thanks to its history, the market collapse becomes widely visible. For this reason, the DJIA becomes the numerical account of the crisis.

Measure rather than predict

As early as the 1910s-1920s, indexes no longer merely summarized the market, but also claimed to anticipate economic conditions. Statisticians such as Babson and Mitchell, then the National Bureau of Economic Research, incorporated indexes into the study of business cycles.

At the same time, economists such as Irving Fisher, as well as Standard Statistics, began to incorporate dividends into indexes. A price index answers the question: “Have prices gone up?” A total return index answers another question: “By how much has shareholder wealth increased?” by incorporating dividends into price increases.

After the crash of 1929, the work of Alfred Cowles, an economist and businessman and co-founder of the econometrics company, raises the question of whether forecasters really beat the market or not. To do this, Cowles compares their advice with a passive strategy based on an index, then the Cowles Commission reconstructs for the period from 1871 to 1937 series of prices, dividends, returns, and earnings. Cowles thus makes the index an instrument of econometric proof and a foundation of empirical finance. Dow invents the media language of the market; Cowles establishes its statistical grammar.

From portfolio to technology

Although investment funds in the United States developed as early as the beginning of the 20th century, a 1950 court decision made pensions a mandatory subject of collective bargaining and determined their growth. In the early 1950s, Harry Markowitz founded modern portfolio theory, which funds would use in their investment choices. He showed that rational investors should build their portfolios on the basis of diversification in order to optimize risk-adjusted return.

The S&P 500, launched in 1957, with its 500 companies and its weighting by free-float market capitalization, is an index closely replicating a market portfolio, suited to evaluating fund managers. The DJIA, still price-weighted, remains a gallery of the largest U.S. companies.

And Nasdaq was

In 1970, the Railroad Average became the Transportation Average: trucks, airplanes, and logistics had dethroned the train. One year later, the Nasdaq Composite, weighted by market capitalization and open to all securities listed on that market, gave a numerical face to capitalism and technological innovation. Yet it would take until 1999 for Microsoft and Intel, listed on the Nasdaq, to join the DJIA.

Since the 1980s, index funds and, later, Exchange Traded Funds (or ETFs), have mechanically tracked indices, no doubt in response to the inability of managers to beat the market over the long term. With their rapid growth in the 2010s, entry into an index or exit from it can trigger massive buying or selling, increase correlations, and alter price formation: the index itself now organizes an increasing share of the flows it observes.

A Pantheon of American history

The DJIA, for its part, remains price-weighted. Unlike indices such as the S&P 500, a company’s entry into the DJIA does not follow mathematical formulas. If technical considerations come into play, the company’s reputation and representativeness are the keys. A committee made up of representatives from the Wall Street Journal and S&P Dow Jones Indices decides at its discretion. These conventions, as well as the absence of dividends in the index, limit its representativeness of the market. But this imperfection sheds light on its current function: a pantheon of U.S. industry.

This history is that of the quantification of financial capitalism. In 130 years, the index has successively become a newspaper figure, an industrial barometer, an information system, statistical evidence, a portfolio benchmark, a technological emblem, and then an investment infrastructure. The Dow remains the common thread: an old mirror that makes it possible to see how finance ended up acting on what it measures.